The SEC registration for the Morningstar Funds Trust is now effective, allowing Morningstar to begin converting its Morningstar Managed Portfolio assets to Morningstar Funds.

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Advisors who invest client funds in Morningstar Managed Portfolios will see some changes starting in the second half of the year.

That’s when Morningstar will begin to replace the assets of Managed Portfolios with Morningstar Funds, whose registration statement with the Securities and Exchange Commission was declared effective on July 11, removing a layer of fees.

Morningstar Funds are offered exclusively to financial advisors and will be subadvised by many of the same investment managers used in Morningstar’s multi-asset Managed Portfolios.

“As more advisors choose to outsource investment management to Morningstar, we are focusing on helping them deliver a lower-cost, personalized, and goal-based experience to investors,” said Kunal Kapoor, Morningstar’s chief executive officer, in a statement.

Kapoor said the launch of Morningstar Funds “expands the menu of options for advisors” who work with Morningstar, from using the firm’s data, research and software in their practice to outsourcing investment management.

The nine mutual funds comprising Morningstar Funds consist of three equity funds, four bond funds, one alternative fund and one unconstrained allocation fund.

Expense ratios range from a low of 0.56% for the Morningstar Total Return Bond Fund to a high of 1.01% for Morningstar International Equity Fund, including fee waivers for some funds that run through the end of August 2020.

Minimizing costs “was the key driver” in Morningstar’s decision “to design and launch its own mutual funds used in Managed Portfolios,” said Daniel Needham, president and chief investment officer of Morningstar Investment Management, in a statement. The new arrangement also gives Morningstar flexibility to make changes in the portfolios and express investment ideas.

Each fund is structured as an open-end mutual fund with distinct objectives and strategies and may invest in securities of other investment companies such as ETFs, but investments will be made primarily through subadvisors.

See the list of funds below. They are the same funds included in Morningstar’s filings with the SEC in April and June, but the expense ratios of a few funds increased slightly in the latest June 28 filing. None of the funds will be rated by Morningstar.

Bernice Napach

Bernice Napach is a senior writer at ThinkAdvisor covering financial markets and asset managers, robo-advisors, college planning and retirement issues. She has worked at Yahoo Finance, Bloomberg TV, CNBC, Reuters, Investor's Business Daily and The Bond Buyer and has written articles for The New York Times, TheStreet.com, The Star-Ledger, The Record, Variety and Worth magazine.
Bernice has a Bachelor of Science in Social Welfare from SUNY at Stony Brook.

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